If you are just logging into your 401(k) portfolio, or your trading account, you will be pleasantly surprised to find that bank stocks are exceptionally bullish. The profitability of major banks like Wells Fargo & Company (WFC), Bank of America (BAC), Citigroup (C), and JPMorgan (JPM) depends on a myriad of factors. These include management, investment/yield opportunities, cost-cutting measures, and yes interest rates. The latter is the most important component of bullishness or bearishness for bank stocks. Given that banks derive their profits from lending money to individuals and corporations, the higher the interest rate the better for banks. In her testimony before Congress on Valentine’s Day, Janet Yellen gave plenty of love to bank stocks. In fact, one would be remiss to disregard the effect her comments had on banking giants.

Why Should Binary Options Traders ‘High-Five’ Janet Yellen after Tuesday’s Hearing?

The federal funds rate is currently 0.50% – 0.75%. At the start of the year, Fed FOMC officials were unequivocal about the number of rate hikes expected this year: 3. Janet Yellen has not walked back the prospect of rate hikes, and is in favor of raising rates sooner, rather than later. A policy of modest but gradual rate hikes is expected in the US this year. This stabilizes monetary policy and allows for real growth in bank stocks and the financial sector overall. Not surprisingly, bank bulls were charging after Yellen speech. Of all the industries in the economy, it is the banking industry that benefits the most when interest rates rise. This includes lending companies, credit companies, merchant banks, insurance companies, commercial banks and the like.

Bank Stocks Pop After Yellen Drops the Hammer

Bank stocks devoured Yellen’s testimony, as if they had been given a bolus of steroids. Citigroup Inc. stock is up 0.74% at $60.27 per share, JPMorgan Chase & Co is up 0.34% at $89.87, Wells Fargo & Company stock is up 0.52% at $58.28 per share, and Bank of America Corporation is up 1.54% at $24.43 per share. There is no clearer indicator of the causal relationship than these price rises. Bank stocks burst out of the gates on Wednesday, 15 February 2017, and they are still running with the flyball tossed to them by Janet Yellen. In fact, Yellen’s testimony was appreciated by Wall Street bourses across the board. These include the S&P 500 index, the Nasdaq composite index, the Dow Jones industrial average and the Russell 2000. If there was ever any doubt that Wall Street was roaring, Valentine’s Day provided plenty of love for the financial markets. The Dow is hovering around 20,500, and the S&P 500 index rose 0.40% to 2337.6. The Nasdaq composite index was up at 5782.6, for a rise of 0.32%.

How Should Binary Options Traders React to Yellen’s Mixed Messages?

Janet Yellen was confident in her assessment of the US economy. Unemployment numbers are falling, inflation is steadily rising and robust economic growth is underway. However, to accelerate and accommodate economic growth, interest rate hikes are needed. Yellen does not want to delay for too long, given that these delays are damaging to the economy and would likely see it overheat. Yellen is against a repeal of Dodd-Frank a complex series of regulatory requirements for banks vis-à-vis capital reserve requirements, reporting and stress tests. Trump and his team want to see the replacement of Dodd-Frank with less regulation so that banks can get on with the business of lending and growing the economy as opposed to being bogged down in regulation.

Yellen is against that and believes that US banks are extremely competitive in the international arena. It appears that banks are less concerned by her opinions on Dodd-Frank than they are on her desire to raise interest rates. This makes sense – it is President Trump who determines what happens with Don-Frank – not Janet Yellen. However, Yellen was not against all the core principles unveiled by the White House. She believes that a full review of US financial regulations is in order, and supports these measures. Among the many issues requiring further scrutiny for banks include: full accountability for regulators, zero moral hazard, and no more taxpayer-funded bailouts for big banks on Wall Street. The economy that Trump inherited is one that is robust and flourishing. With unemployment at just 4.8% (January 2017), things are looking good for the US economy, and banks are going to benefit from Fed policy.